"I have always
received official permission to perform ... consultations and have
performed [them] outside of my normal NIH work schedule and according
to strict government guidelines and rules."

-- DR. STEPHEN I. KATZ,
director of the NIH's arthritis institute

CONFLICT OF
INTEREST

MEDICAL
RESEARCH

NATIONAL
INSTITUTES OF HEALTH

NATIONAL
INSTITUTES OF HEALTH CONFLICT OF INTEREST

ETHICS

By David Willman, Times
Staff Writer

BETHESDA, Md. --
"Subject No. 4" died at 1:44 a.m. on June 14, 1999, in the
immense federal research clinic of the National Institutes of Health.

The cause of death was
clear: a complication from an experimental treatment for kidney
inflammation using a drug made by a German company, Schering AG.

Among the first to be
notified was Dr. Stephen I. Katz, the senior NIH official whose
institute conducted the study.

Unbeknown to the
participants, Katz also was a paid consultant to Schering AG.

Katz and his institute
staff could have responded to the death by stopping the study
immediately. They also could have moved swiftly to warn doctors
outside the NIH who were prescribing the drug for similar disorders.
Either step might have threatened the market potential for Schering
AG's drug.

They did neither.

Questioned later, Katz
said that his consulting arrangement with Schering AG did not
influence his institute's decisions. His work with the company was
approved by NIH leaders.

Such dual roles --
federal research leader and drug company consultant -- are
increasingly common at the NIH, an agency once known for independent
scientific inquiry on behalf of a single client: the public.

Two decades ago, the
NIH was so distinct from industry that Margaret Heckler, secretary of
Health and Human Services in the Reagan administration, could
describe it as "an island of objective and pristine research,
untainted by the influences of commercialization."

Today, with its senior
scientists collecting paychecks and stock options from biomedical
companies, the NIH is no longer an island.

Interviews and
corporate and federal records obtained by the Los Angeles Times
document hundreds of consulting payments to ranking NIH officials,
including:

* Katz, director
of the NIH's National Institute of Arthritis and Musculoskeletal and
Skin Diseases, who collected between $476,369 and $616,365 in company
fees in the last decade, according to his yearly income-disclosure
reports. Some of his fees were reported in ranges without citing
exact figures. Schering AG paid Katz at least $170,000. Another
company paid him more than $140,000 in consulting fees. It won $1.7
million in grants from his institute before going bankrupt last year.

* Dr. John I.
Gallin, director of the NIH's Clinical Center, the nation's largest
site of medical experiments on humans, who has received between
$145,000 and $322,000 in fees and stock proceeds for his consulting
from 1997 through last year. In one case, Gallin co-wrote an article
highlighting a company's gene-transfer technology, while hiring on as
a consultant to a subsidiary of that company.

* Dr. Richard C.
Eastman, the NIH's top diabetes researcher in 1997, who wrote to the
Food and Drug Administration that year defending a product without
disclosing in his letter that he was a paid consultant to the
manufacturer. Eastman's letter said the risk of liver failure from
the drug was "very minimal" Six months later, a patient,
Audrey LaRue Jones, who was taking the drug in an NIH study that
Eastman oversaw, suffered sudden liver failure and died. Liver
experts found that the drug probably caused the liver failure.

* Dr. Ronald N.
Germain, deputy director of a major laboratory at the National
Institute of Allergy and Infectious Diseases, who has collected more
than $1.4 million in company consulting fees in the last 11 years,
plus stock options. One of the companies collaborated with his
laboratory on research. The founder of another of the companies
worked with Germain on a separate NIH-sponsored project.

* Jeffrey Schlom,
director of the National Cancer Institute's Laboratory of Tumor
Immunology and Biology, who has taken $331,500 in company fees over
10 years. Schlom helped lead NIH-funded studies exploring wider use
for a cancer drug -- at the same time that his highest-paying client
was seeking to make the drug through genetic engineering.

* Jeffrey M.
Trent, who became scientific director of the National Human Genome
Research Institute in 1993 and, over the next three years, reported
between $50,608 and $163,000 in industry consulting fees. Trent, who
accepted nearly half of that income from a company active in genetic
research, was not required to file public financial-disclosure
statements as of 1997. He left the government last year.

Hidden From View

Increasingly, outside
payments to NIH scientists are being hidden from public view. Relying
in part on a 1998 legal opinion, NIH officials now allow more than
94% of the agency's top-paid employees to keep their consulting
income confidential.

As a result, the NIH is
one of the most secretive agencies in the federal government when it
comes to financial disclosures. A survey by The Times of 34 other
federal agencies found that all had higher percentages of eligible
employees filing reports on outside income. In several agencies,
every top-paid official submitted public reports.

The trend toward
secrecy among NIH scientists goes beyond their failure to report
outside income. Many of them also routinely sign confidentiality
agreements with their corporate employers, putting their outside work
under tight wraps.

Gallin, Germain, Katz,
Schlom and Trent each said that their consulting deals were
authorized beforehand by NIH officials and had no adverse effect on
their government work. Eastman declined to comment for this article.

Dr. Arnold S. Relman,
the former editor of the New England Journal of Medicine, said that
private consulting by government scientists posed "legitimate
cause for concern."

"If I am a
scientist working in an NIH lab and I get a lot of money in
consulting fees, then I'm going to want to make sure that the company
does very well," Relman said.

Relman and others in
the field of medical ethics said company payments raised important
questions about public health decisions made throughout the NIH:

* Will judgment
calls on the safety of individual patients be affected by commercial
interests?

* Can study
participants trust that experimental treatments are chosen on merit
and not because of officials' personal financial interests?

* Will scientists
shade their interpretations of study results to favor their clients?

* Will officials
favor their clients over other companies that seek NIH grants or
collaborations?

Conflict-of-interest
questions also arise in the potentially lucrative awarding of
patents.

Thomas J. Kindt, the
director of in-house research at the National Institute of Allergy
and Infectious Diseases, accepted $63,000 in consulting fees from a
New York biotechnology company, Innovir Laboratories, and wound
up an inventor on one of its patents.

Asked why the
government received no consideration, Kindt said that he had
contributed to the "basic idea" while using vacation time.

"No work was done
on it as a government employee," said Kindt, whose annual salary
at the NIH is $191,200. His consulting with Innovir was approved by
NIH officials, Kindt said.

Others worry that the
private arrangements can undermine the public interest.

"The fact that
paid consulting is happening I find very disturbing," said Dr.
Curt D. Furberg, former head of clinical trials at the National
Heart, Lung and Blood Institute. "It should not be done."

Private consulting fees
tempt government scientists to pursue less-deserving research and to
"put a spin on their interpretation" of study results, he
said.

"Science should be
for the sake of gaining knowledge and looking for the truth,"
Furberg said. "There should be no other factors involved that
can introduce bias on decision-making."

Dr. Ruth L.
Kirschstein, who as the deputy director or the acting director of the
NIH since 1993 has approved many of the top officials' consulting
arrangements, said she did not believe they had compromised the
public interest. "I think NIH scientists, NIH directors and all
the staff are highly ethical people with enormous integrity,"
she said. "And I think we do our business in the most remarkable
way."

In response to The Times' findings, Kirschstein said, she would "think about"
whether administrators should learn more about a company's ties to
the NIH before approving the consulting arrangements.

"Systems can
always be tightened up," Kirschstein said on Oct. 29. "And
perhaps, based on this, we will do so."

On Nov. 20, NIH
Director Elias A. Zerhouni told agency leaders that he would form a
committee to help "determine the appropriateness" of
employees' consulting and other outside arrangements.

"I believe we can
improve our performance by subjecting ethics deliberations to a more
transparent process," Zerhouni said in a memo.

In a brief telephone
interview last week, Zerhouni said he wanted the NIH "to manage
not just the reality, but the perception of conflict of interest."

"If there is
something that could be viewed as improper, I think we need to be
able to advise our scientists not to get into these relationships,"
he said. "My sense is our scientists are people of goodwill."

Temptations Abound

The NIH traces its
beginnings to the Laboratory of Hygiene, founded in 1887 within a
Navy hospital on Staten Island in New York. It became the federal
government's first research institution for confronting such epidemic
diseases as cholera, diphtheria, tuberculosis and smallpox.

The laboratory's
success convinced Congress of its value in seeking cures for
diseases.

In 1938, the renamed
National Institute of Health moved to its present, 300-acre
headquarters in Bethesda, about nine miles north of the White House.

The agency's
responsibilities -- and prominence -- have grown steadily.

In 1948, four
institutes were created to support work on cardiac disease,
infectious diseases, dental disorders and experimental biology.
"Institute" in the agency's name became "Institutes."

President Nixon turned
to the NIH in 1971 to lead a war on cancer. The agency has led the
government's fight against AIDS. Two years ago, President Bush
enlisted the NIH to help counter biological terrorism.

Republican and
Democratic administrations have boosted spending for the 27 research
centers and institutes that compose today's NIH. Since 1990, the
annual budget has nearly quadrupled, to $27.9 billion this fiscal
year.

Senior NIH scientists
are among the highest-paid employees in the federal government.

With billions of
dollars in product sales potentially at stake for industry, and
untold fortunes riding on biomedical stock prices, commercial
temptations abound:

Researchers poised to
make a breakthrough in their NIH labs can, the same day, land paid
consulting positions with companies eager to exploit their insights
and cachet. Many companies cite their connections to NIH scientists
on Web sites and in news releases, despite an agency rule against the
practice. Selection of a company's products for an NIH study can
provide a bankable endorsement -- attracting investors and boosting
stock value. If the study yields positive results, the benefits can
be even greater.

Conflicts of interest
among university medical researchers have received wide attention in
recent years. U.S. Rep. W.J. "Billy" Tauzin (R-La.) also
raised questions recently about cash awards that several nonprofit
institutions made to a previous director of the National Cancer
Institute.

The consulting deals
between drug companies and full-time, career employees at the NIH,
however, have gone all but unnoticed.

The wide embrace of
private consulting within the NIH can be traced in part to calls from
Congress for quicker "translation" of basic federal
research into improved treatments for patients.

And for decades
industry has pressed for more access to the government's scientific
discoveries.

As the number of
government-held patents soared, companies sought legislation
encouraging commercialization of federally funded inventions. The
proponents said the changes also would make U.S. firms more
competitive with foreign companies whose research and development
programs were subsidized by their governments.

Laws enacted in the
1980s for the first time authorized formal research collaborations
between companies and scientific arms of the government, including
the NIH. Starting in late 1986, in-house researchers at the NIH were
permitted to arrange cooperative research agreements with companies.

The agreements were
intended to benefit both sides while advancing scientific discovery.

Other changes in law
permitted the government agencies, and the researchers, to share in
future patent royalties for inventions.

The new laws said
nothing about government employees being hired by the companies.

Yet by the end of the
1980s, more companies were putting NIH researchers on their payrolls,
albeit within limits imposed by the NIH.

Agency leaders in the
1990s began weakening those restrictions.

In November 1995,
then-NIH Director Harold E. Varmus wrote to all institute and center
directors, rescinding "immediately" a policy that had
barred them from accepting consulting fees and payments of stock from
companies.

The changes, he wrote,
would bring the NIH ethics rules more in line with new, less
stringent, executive branch standards. Loosening of restrictions on
employees' outside pursuits was occurring throughout the government.
And with biomedical companies ready to hire, few were better
positioned to benefit than employees at the NIH.

Varmus' memo -- which
until now has not been made public -- scuttled other restraints
affecting all employees, including a $25,000 annual limit on outside
income, a prohibition on accepting company stock as payment and a
limit of 500 hours a year on outside activities.

His memo also offered a
narrowed definition of conflict of interest:

Employees had been
barred from consulting for any company that collaborated with their
NIH lab or branch. But Varmus said the ban would be applied only if
the researcher was personally involved in the company's collaboration
with the agency.

Furberg, the former NIH
official, said Varmus' actions invited, at minimum, appearances of
conflict of interest.

"I'm amazed at
what he did," said Furberg, a professor at Wake Forest
University. "And to do it in secrecy I find very objectionable.
This is a critical change in the NIH policy."

In 1999, Varmus wrote a
letter to the institute directors that cautioned them to "avoid
even the appearance of a conflict of interest." But in an
attachment to the letter, he told them that employees "may
briefly discuss or mention current work" to outsiders, in effect
giving agency scientists permission to reveal
their unpublished, confidential research.

Varmus, now president
and chief executive of the Memorial Sloan-Kettering Cancer Center in
New York, declined to be interviewed for this article His
spokeswoman, R. Anne Thomas, said that Varmus, who in 1989 shared a
Nobel Prize for research into the genetic basis of cancer, believed
that NIH employees should take personal responsibility for avoiding
conflicts of interest, regardless of what agency rules allow.

Kirschstein, after
taking over as Varmus' interim successor at the NIH three years ago,
said in a May 2000 speech to medical researchers that conflicts of
interest posed "a major concern."

"While the federal
government was once the dominant force for supporting clinical
research, today we share the arena with biotechnology companies,
pharmaceutical firms and many others â€” all
interested in the possibility of financial gain from their research.

"Profit raises
issues of public trust," she said. "When scientific inquiry
generates findings that can make a profit for the researcher and the
institution, their images become clouded."

Yet officials have
lifted controls on consulting even as industry's stake in NIH
research has deepened. When Zerhouni, the current NIH director,
appeared before the House Subcommittee on Environment, Technology and
Standards last year, he cited 274 ongoing research and development
agreements between the federal agency and industry.

At the same time, NIH
leaders have moved to what they describe as "managing"
conflicts of interest. Employees are allowed to consult if they
receive prior clearance from an administrator at their institute or,
in the case of most institute directors, from NIH headquarters.

An Honor System

Potential conflicts are
typically addressed by allowing employees to sign "recusals.”
Under these agreements, NIH employees pledge not to participate in
decisions affecting an outside client. Agency officials, Kirschstein
said, rely on an honor system to enforce recusals and other
conflict-of-interest rules.

The Times found
instances in which the recusals did not work as intended.

In the mid-to-late
1990s, Eastman, the diabetes researcher, participated in a series of
decisions affecting the drug company employing him as a consultant,
despite having signed a recusal. Separately, Katz, the director of
the arthritis institute, signed a recusal involving his client,
Schering

AG, which nevertheless
supplied the NIH with the drug involved in the kidney patient's death
in 1999.

Katz said that he did
not know at the time that Schering AG was the maker of the drug his
institute was testing.

Compliance with the
recusals can, itself, undercut the interests of the NIH and
taxpayers, who support the agency. When heads of institutes and
laboratories recuse themselves, they sometimes constrain their
ability to carry out their government duties.

Kirschstein, who for
the last eight years has personally reviewed requests from the
institute directors to consult privately for pay, said she tended to
approve the deals, unless she saw "real conflict."

"I've disapproved
some -- and I've approved many," she said.

In her view, recusals
have worked "extremely well" in avoiding conflicts of
interest.

Other present and
former officials say it is difficult, if not impossible, for
researchers to keep separate their confidential government
information when they consult for companies.

"You can't police
the thing," Philip S. Chen Jr., a senior advisor in the NIH
director's office who has served as an agency scientist or
administrator since the 1950s, said in an interview last year. "The
rules are there -- whether they follow the rules is another thing."

A former NIH director
voiced surprise at the agency's loosened approach to conflicts of
interest.

"There has been a
lot of relaxation," said Dr. Bernadine P. Healy, who served as
director from 1991 to 1993. Before, Healy said in an interview,
"there were very strict ethics rules for NIH scientists. You
couldn't have virtually any connection with a company if your
institute was in any way doing research involving their products."

At least one vestige of
the old days remains.

During last year's
holiday season, workers were advised to refuse gifts from outsiders
worth more than $20.

"Just a reminder,"
ethics coordinator John C. Condray wrote, introducing a five-page
memo, "that sometimes gifts and events can create the appearance
of a lack of impartiality."

Fewer Public Filings

While making it easier
for scientists to cut consulting deals, the NIH has made it harder
for the public to find out about them.

The Ethics in
Government Act requires yearly financial-disclosure reports from
senior federal employees. This year, employees paid $102,168 or more
generally must disclose outside income by filing a "278"
form, which is available for public review. Other employees may file
a "450" form -- which does not specify the amount of money
received from an outside party and is kept confidential.

At the NIH, 2,259
employees make more than $102,168, according to data provided by the
NIH. Those records show that 127 of the employees -- about 6% -- are
filing disclosure forms available to the public.

From 1997 through 2002,
the number of NIH employees filing public reports of their outside
income dropped by about 64%, according to the agency records. Most of
those employees have switched to filing the confidential 450 form.

At the National
Institute of Allergy and Infectious Diseases -- which researches
treatments for AIDS and other life-threatening maladies -- only three
officials file public reports revealing their outside income,
according to NIH records.

Officials at the NIH
said that an advisory legal opinion from the U.S. Office of
Government Ethics gave them the discretion to bypass public
disclosure.

Issued in 1998, the
opinion said that the threshold for public disclosure was to be set,
not by a federal employee's actual salary, but by the low end of his
or her pay grade. If the minimum salary in an employee's grade is
beneath the $102,168 threshold, he or she is exempt from filing a
public report.

The NIH has shifted
many of its high-salaried employees into pay plans with minimums that
dip below the threshold.

For instance, two
prominent NIH laboratory leaders, Schlom and Germain, make $180,400
and $179,900, respectively. Within roughly the last year, NIH changed
each of their pay plans, and they now are exempt from public
disclosure.

They file confidential
forms, which instruct employees to not specify the dollar amounts
they receive from outside parties.

Asked why the NIH has
assigned highly paid staff to plans that eliminate public disclosure
of employees' outside income, an NIH spokesman, John Burklow,
provided a written response:

"The primary
benefit of the alternate pay plans is to attract and retain the best
scientists in a highly competitive environment."

Said Donald Ralbovsky,
another NIH spokesman: "What it really boils down [to] is that
fewer people are filing 278s because of changes in pay plans."

The shift imparts an
implicit message to employees, said George J. Galasso, a former NIH
researcher and administrator who retired in 1996:

"If you've got
something to hide, you file a 450. If you don't, you file a 278."

Make-or-Break Grants

As director of the
National Institute of Arthritis and Musculoskeletal and Skin
Diseases, Katz is one of the few at the NIH who still must file
public financial-disclosure reports.

Katz, 62, is paid
$200,000 a year -- more than members of Congress, justices on the
Supreme Court and the vice president.

His institute leads the
government's research into the causes, treatment and prevention of
disorders of the joints, bones and overall muscle-skeletal system.

With a yearly institute
budget of $485.4 million, Katz's decisions are watched closely by
industry. The director's office decides how much of the budget will
be spent on grants and contracts coveted by companies.

And Katz has been
available for outside consultation: From 1993 through 2002, Katz took
between $476,369 and $616,365 in fees from seven biotech and
pharmaceutical companies, according to his annual disclosure
statements. He consulted while chief of the dermatology branch at the
National Cancer Institute and continued after becoming arthritis
institute director in 1995.

Katz said that his
private consulting broke no rules and that he relied in part on
Varmus' 1995 memo while entering arrangements with companies.

"The consultations
provided my global knowledge as a dermatologist and research
scientist," Katz said in written responses to questions from
The Times. "I have always received official permission to perform
these consultations and have performed these consultations outside of
my normal NIH work schedule and according to strict government
guidelines and rules."

One of his clients was
Advanced Tissue Sciences Inc.

The struggling biotech
company in San Diego hired Katz as a consultant in 1997, a year after
he had announced a new NIH research initiative for bone and
connective-tissue repair.

Advanced Tissue
installed Katz on its scientific advisory board and paid him fees
between $142,500 and $212,500 from 1997 through 2002, according to
his income-disclosure reports.

During that time,
Katz's institute pledged $1.7 million in small-business research
grants to the company. The company announced nearly every grant in a
news release; Advanced Tissue's president termed the grants "an
endorsement by the government."

In his written
response, Katz said that he had signed a recusal "withdrawing
myself from any interactions between Advanced Tissue Sciences and the
government to remove any real or potential conflict of interest."

The grants were awarded
following evaluations by NIH reviewers outside of Katz's institute.

Responsibility for
administering the grants to Advanced Tissue was delegated to one of
his subordinates, Katz said.

The NIH policy manual
says officials may not take fees from companies seeking or receiving
agency grants "if the employee is working on or involved in
these matters" or "supervising others who work on these
matters."

Katz said his
subordinate "handled all decisions regarding these grants
without informing me."

However, Advanced
Tissue kept him apprised as NIH grants were obtained, a company
executive said.

"He was informed,"
said Anthony J. Ratcliffe, the firm's vice president for research
until its collapse a year ago. "We would have made a written
report to the SAB [scientific advisory board] members twice a year.
There would have been a report to the SAB meetings on all grants, all
grant activities."

Ratcliffe said the
company dealt with Katz's potential conflict of interest by paying
him in fees alone, and not stock options. Both men said Katz did not
advise the company on the NIH grants.

His consultations, Katz
said, were limited to his scientific expertise and "never
involved, directly or indirectly, the preparation or discussion of
material which could relate to any financial dealings between
[Advanced Tissue] and the NIH."

Kirschstein, the senior
NIH official who each year approved Katz's consulting with Advanced
Tissue, said she did not learn the company held grants with the
arthritis institute until The Times inquired.

"I didn't even
know there were grants," Kirschstein said.

As it turned out, the
grants would be among the few positive financial developments for
Advanced Tissue.

By December 2001, its
cumulative net operating losses were approximately $292.7 million.
Barely a year later, the company entered bankruptcy and shut its
doors, having collected about $1.5 million of the $1.7 million in
small-business research grants.

Life-and-Death Decisions

While Katz was
consulting for Advanced Tissue, he also was on the payroll of
Schering AG, which made Fludara, a drug that his research staff was
using as an experimental treatment for autoimmune diseases.

From the time he began
consulting for Schering AG in 1996 through 2002, Katz collected
between $170,000 and $240,000 in fees from the company, his
disclosure reports show.

In his responses to
questions, Katz said that he "first became aware" that
Fludara was a Schering AG product when The Times made inquiries.

Fludara had been
approved by the Food and Drug Administration in 1991 to treat
leukemia, but the company wanted to expand its use to other diseases,
a goal the NIH studies could advance.

Two people died in the
studies conducted by Katz's institute.

In one study using
Fludara to treat muscular disorders, a patient suffered what agency
researchers reported in July 1998 as a "sudden death -- not
thought to be drug related."

The second fatality,
indisputably, resulted from the treatment. It involved "Subject
No. 4," who had enrolled in a separate study, designed to treat
kidney inflammation related to lupus, a disease of the immune system.

Schering AG provided
Katz's institute with a supply of Fludara and with analyses of
patients' blood samples through its U.S. affiliate, Berlex
Laboratories, records and interviews show. The company also
contributed a total of $60,000 to the institute to support the
research, eliciting a July 1, 1998, thank-you letter from Katz.

Participants entering
the study were warned of some risks. The NIH advised them that
Fludara might cause damage to their blood cells and that, as a
result, "blood transfusions may be required."

That is what befell
Jamie Ann Jackson, identified in NIH documents as "Subject No.
4."

Jackson, a registered
nurse, lived with her husband, their two daughters and a son in
Plainville, Mass., about 37 miles southwest of Boston. She received
four transfusions between March and May of 1999, yet grew sicker.

On June 1, trembling
with chills, Jackson was admitted to the NIH Clinical Center in
Bethesda. Within days, lab results confirmed that she was in the grip
of graft-versus-host disease. The graft of outside material -- in
this instance, blood from a transfusion -- attacks and overwhelms the
immune system and organs of the new host.

Fatal in about 90% of
cases, the malady had been documented in leukemia and other cancer
patients who took Fludara. For that reason, the risk of
graft-versus-host disease was noted in the product labeling -- as was
a warning about irradiating transfusions as a prevention.

But the NIH doctors did
not specify that transfusions should be irradiated for patients in
the lupus study. In an interview, Dr. John H. Klippel, then the
institute's clinical director, said he could not recall whether he or
his colleagues took stock of the label warning.

In Britain, authorities
were more cautious, recommending that blood transfusions for all
patients taking Fludara be irradiated. The British recommendations
were described in 1996 in The Lancet, a medical journal with an
international circulation.

Two weeks after being
admitted to the NIH Clinical Center, 42-year-old Jamie Ann Jackson
died.

"Steve Katz was
notified almost immediately," Klippel said.

Katz's subordinates
warned the remaining patients and their personal doctors about the
death and, for the first time, advised them to irradiate any
transfusions. The FDA was informed.

But the NIH office
responsible for conducting an inquiry into research deaths was not
promptly notified.

And while Katz's
institute stopped enrolling recruits, the treatment of those already
in the study continued for nine months after Jackson's death.

After five of the other
12 patients given Fludara experienced abnormal changes in their
blood, increasing their risk of infection, the experiment was
stopped, 20 months before its scheduled conclusion.

'Absolutely No Role'

While Fludara's use for
anything other than leukemia remained experimental, an increasing
number of doctors were prescribing it "off-label" for
diseases of the immune system, including rheumatoid arthritis.

Yet the NIH was slow in
warning them about the lethal, but preventable, problem of
graft-versus-host disease.

It was not until
October 2000, 16 months after Jackson died, that doctors from the NIH
briefly summarized the death in Transfusion, the journal of the
American Assn. of Blood Banks.

Meanwhile, three
articles written by NIH doctors and published from March 2000 through
May 2001 referred to the agency's work with Fludara without
mentioning the risk of graft-versus-host disease or the death in
their study.

In an article published
in the May 2001 issue of the journal Pharmacotherapy, the doctors,
three from Katz's institute, wrote that Fludara "was well
tolerated" and thanked the company for providing the drug and
"analytical support".

Not until last week --
4 1/2 years after the event -- did the same doctors appear as authors
of a full-length article describing Jackson's death. It was published
in Transfusion.

In his responses to The Times, Katz said that, to his knowledge, "all matters concerning
the adverse event were handled according to standard operating
procedures."

Katz said that he had
signed a recusal, pledging not to participate in matters involving
Schering AG. He said he had nothing to do with initiating the study,
"was not advised that it was ongoing and had absolutely no role
in overseeing its conduct."

The Times documented
three instances in which he discussed the study: The July 1998 letter
acknowledging the company's first half of the $60,000 donation; the
June 1999 phone call from Klippel notifying him of the death; and a
meeting in April 2000 with Kirschstein to discuss the fatality and
his institute's response to it.

Katz confirmed all
three incidents in a series of e-mail exchanges.

He said he wrote the
letter without realizing that Berlex Laboratories was the American
arm of Schering AG.

"At that time, I
was unaware of any relationship between Berlex Laboratories and
Schering AG and was, therefore, unaware that my sending the thank you
letter might present any conflict of interest."

Katz declined to
identify when he learned that Berlex was the U.S. affiliate of
Schering AG.

The relationship
between Schering AG and Berlex has not been a secret. News articles
describe Berlex as Schering AG's U.S. business unit. The Berlex and
Schering AG Web sites make clear the affiliation. In 1998 -- two
years after Katz was hired -- Berlex accounted for 17% of Schering
AG's net global sales.

Oliver Renner, a
spokesman in Berlin for Schering AG, said: "Berlex Laboratories
is a fully owned subsidiary of Schering AG. We are distributing our
products under the name of Berlex in the United States. We also
conduct research and development work through our Berlex entities."

Katz, asked about the
phone call he received when Jackson died, said he did not then
realize what company made the study drug. Although the study was
ongoing, he said he did nothing in response to being notified of the
death.

"No further action
was required or undertaken by me," Katz said.

He said he remained
uninformed about Schering AG's connection to the study when he met
with Kirschstein in April 2000.

"The reason that I
did not exclude myself from any contact regarding the lupus
[clinical] trial was that I was unaware, and no one on the staff
brought to my attention, that the trial had any relationship to
Schering AG," Katz said. He noted that the arthritis institute
first used Fludara for lupus in 1993, before he arrived as director.

Representatives of
Schering AG said the company did nothing out of the ordinary in
collaborating with the NIH -- and in hiring Katz.

"The discovery and
development of new pharmaceuticals often involves a combination of
government and private industry efforts," the company said in a
statement. "It is also a common practice for pharmaceutical
companies to work with many leading external experts. In keeping with
this practice, we have a consulting agreement with a Dr. Stephen Katz
from the NIH involving his expertise in the field of dermatology."

Schering AG is no
longer pursuing development of Fludara as a treatment for autoimmune
diseases.

Kirschstein, the NIH
official who approved Katz's consulting for Schering AG, said she had
not known its drug was being tested by his institute.

Kirschstein said she
did recall being visited by Katz and his top aide in April 2000. The
NIH's human protection office had just opened an internal review of
the lupus-related study, questioning the researchers' failure to
protect against graft-versus-host disease, as well as their failure
to report the death to agency investigators in a timely fashion.

"Dr. Katz and his
scientific director came to me … to tell me about a study in
which a drug was used and there was a death," Kirschstein said.
"They did not tell me the name of the drug, and did not tell me
much about the study, but told me that they and the [department] were
looking into it."

In a follow-up letter
two years later, the internal review absolved the institute of
responsibility for Jackson's death. Her husband has filed a
wrongful-death lawsuit against the government in U.S. District Court.
The lawsuit does not refer to Katz.

Jackson's mother,
Carmella Tarte, said time had not eased her grief.

"We all went to
the hospital, but we never even got to talk to her," Tarte said
in an interview. "It's been four years and, well, Thanksgiving
was just another day, you know? She has children she didn't see
graduate."

*******

About This Report

In late 1998, the
Los Angeles Times began examining payments from drug companies to
employees of the National Institutes of Health and the agency's
research collaborations with industry. This report is based on
records from the federal government and from companies, as well as
scores of interviews.

In early 1999, the
newspaper first sought income-disclosure reports for all eligible
employees of the 27 research institutes and centers of the NIH. The
newspaper, as of this month, had filed 36 requests with the NIH for
documents under the Freedom of Information Act.

According to NIH staff,
the agency has provided documents totaling 13,784 pages, including
annual financial-disclosure reports, memos and internal e-mails.

A significant number of
NIH employees had by this year stopped filing yearly income reports
that are open to public inspection. To assess the relative extent of
public financial disclosure at the NIH, The Times in July queried
dozens of other federal agencies under the Freedom of Information
Act.

Other documentation,
describing products and hundreds of research collaborations between
the NIH and industry, was retrieved from company and NIH Web sites,
from filings with the Securities and Exchange Commission, and from
lawsuits filed in federal and state courts. Other related documents
were obtained from the Food and Drug Administration under the Freedom
of Information Act.

*****

Contributors

Times researcher Janet
Lundblad in Los Angeles assisted in this report.

Researchers Robert
Patrick and Christopher Chandler in Washington also contributed.

Follup story:

U.S. Scientists' Deals With Drug Firms Under Review

Mon Dec 29, 3:51 AM ET

By David Willman Times Staff Writer

WASHINGTON — The director of the National Institutes of Health, moving to shore up confidence in the agency, may seek
to
expand public disclosure of paid consulting arrangements between
drug-
development companies and his federal employees.
Citing "concerns" raised about the consulting payments, the
director
of the agency, Dr. Elias A. Zerhouni, said in a letter to the
chairman of the House Energy and Commerce Committee that he was
taking corrective actions.

"I have ordered a review of financial disclosure requirements for
NIH
personnel, and after this review, I will act to increase
appropriate
financial disclosure," Zerhouni wrote in his letter to the
committee
chairman, Rep. W.J. "Billy" Tauzin (R-La.).

Zerhouni's letter, dated Tuesday, added: "Our mission is too
important to the public health of the nation to have it undermined
by
any real or perceived conflicts of interest. I believe that the
public's interest is best served by complete transparency, full
disclosure, independent review, and proactive management and
monitoring of all outside relationships."

Zerhouni wrote that he had initiated a review of all
nongovernmental
payments made to NIH employees since Jan. 1, 1999. Within the next
few weeks, he said, "recommendations for appropriate action" will
be
completed. A copy of the letter was obtained by The Times.
Zerhouni also said that he was in the process of appointing
a "blue
ribbon panel to fully review ethical policies and practices at NIH
and propose recommendations for improving such policies and
practices
within 90 days." The panel, he said, "will include independent
experts in the field of ethics management."
The NIH director wrote that his "ongoing review of outside
activity
files shows no evidence that patients were harmed or that
decisions
were influenced" by consulting fees paid to agency employees by
research companies.
His goal, Zerhouni said, is "to erase any doubts in the minds of
Congress or the public that we remain worthy of the trust and
confidence that you have placed in us."
Zerhouni's comments followed a Dec. 7 Los Angeles Times article
documenting hundreds of consulting payments from biomedical
companies
to NIH employees.
The article also reported that, in 2003, more than 94% of the
NIH's
top-paid employees were not required to publicly disclose
consulting
income. The employees who report their outside income
confidentially
are instructed on a government form not to identify the amounts
that
they are paid.
The article reported that, based on relaxed ethics rules
communicated
internally by then-NIH Director Harold E. Varmus in November 1995,
directors of the agency's research institutes and centers have
accepted consulting fees from companies. The article also reported
instances in which written pledges by NIH officials not to
participate in matters involving companies paying them were not
carried out as intended.

Tauzin and Rep. James C. Greenwood (R-Pa.), who is chairman of the
House Oversight and Investigations Subcommittee, wrote to Zerhouni
on
Dec. 8, requesting a full accounting of the industry payments to
NIH
employees and related documentation.
Reached on Saturday, Greenwood said that his subcommittee within
the
next three months would hold one or more hearings on conflict-of-
interest policies at the NIH. The agency, which for decades has
led
the federal government's efforts to combat infectious and other
diseases, has an annual budget of $27.9 billion.
Greenwood said the NIH needed to increase public disclosure and
put
an end to high-ranking officials' consulting deals with biomedical
companies.
"We have undisclosed contractual, financial relationships between
federal employees and businesses very closely associated with
their
agency," Greenwood said in an interview. "There may be thousands
of
these relationships. I think that's cause for serious alarm."
Greenwood said he was troubled by policies that allow NIH
employees
to consult for pay with companies that are involved directly or
indirectly in research with the agency.
"This is not just a matter of a revolving door, where at NIH
people
go from the federal agency to the private sector," he said. "This
is
a question of a swivel chair, where they sit at one desk and do
both
jobs."
In particular, Greenwood said, he questions the prudence of
allowing
NIH's institute and center directors to serve as paid consultants
to
drug companies.
"I have grave concern about institute directors having outside
sources of income," Greenwood said. "It's like deputy secretaries
of
Defense working for Lockheed Martin."

He added, "I think that it is a great honor to be the head of a
center in the NIH. And at some point if you want to take all of
the
wisdom that you gained in your career and go cash out in the
private
sector, go for it. But I'm very uncomfortable with these guys
having
their feet in both camps."
Zerhouni, who became NIH director in spring 2002 as an appointee
of
President Bush (news - web sites), did not address in his letter
whether he believed institute and center leaders should be allowed
to
continue as consultants to industry. He wrote that "collaborations
between public and private scientists and institutions are
essential
to translating our discoveries into effective treatments and in
attracting and retaining outstanding scientists to government
service."
Zerhouni offered to meet with Tauzin at the chairman's "earliest
convenience to brief" him about the director's plans for changing
ethics rules at the NIH. A spokesman for Tauzin said that because
of
holiday scheduling, his boss had not yet read Zerhouni's letter.
Greenwood, for his part, said that Zerhouni "inherited these
problems
and [is] doing his level best to deal with them. If the NIH is
going
to be trusted with this huge budget that we've developed for them,
then they have to avoid not only conflict of interest, but the
appearance of conflict of interest."